form10q.htm


United States
Securities and Exchange Commission
Washington, D.C. 20549

Form 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2012

Or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to _____

Commission File Number 1-13145

Jones Lang LaSalle Incorporated
(Exact name of registrant as specified
in its charter)

Maryland
(State or other jurisdiction of incorporation or organization)

36-4150422
(I.R.S. Employer Identification No.)

200 East Randolph Drive, Chicago, IL
 
60601
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: 312-782-5800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 
Large accelerated filer x
Accelerated filer o
     
 
Non-accelerated filer (Do not check if a smaller reporting company) o
Smaller reporting compan y o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
 
The number of shares outstanding of the registrant’s common stock (par value $0.01) as of the close of business on October 24, 2012 was 44,047,380.
 


 
 

 
 
 
     
Part I
 
     
Item 1.
3
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
Item 2.
19
     
Item 3.
32
     
Item 4.
33
     
Part II
 
     
Item 1.
33
     
Item 5.
33
     
Item 6.
36

 
Part I
Item 1.

JONES LANG LASALLE INCORPORATED
Consolidated Balance Sheets
Septmember 30, 2012 (Unaudited) and December 31, 2011
($ in thousands, except share data)

   
September 30,
       
   
2012
   
December 31,
 
Assets
 
(Unaudited)
   
2011
 
Current assets:
           
Cash and cash equivalents
  $ 125,730       184,454  
Trade receivables, net of allowances of $24,523 and $20,595
    858,594       907,772  
Notes and other receivables
    99,074       97,315  
Warehouse receivables
    54,140       -  
Prepaid expenses
    62,513       45,274  
Deferred tax assets
    50,269       53,553  
Other
    18,770       12,516  
Total current assets
    1,269,090       1,300,884  
                 
Property and equipment, net of accumulated depreciation of $342,857 and $336,377
    248,036       241,415  
Goodwill, with indefinite useful lives
    1,816,944       1,751,207  
Identified intangibles, net of accumulated amortization of $108,083 and $99,801
    47,745       52,590  
Investments in real estate ventures
    295,525       224,854  
Long-term receivables
    56,881       54,840  
Deferred tax assets, net
    183,809       186,605  
Other
    135,980       120,241  
Total assets
  $ 4,054,010       3,932,636  
                 
Liabilities and Equity
               
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 373,811       436,045  
Accrued compensation
    480,956       655,658  
Short-term borrowings
    30,775       65,091  
Deferred tax liabilities
    6,095       6,044  
Deferred income
    86,296       58,974  
Deferred business acquisition obligations
    184,006       31,164  
Warehouse facility
    54,140       -  
Other
    97,301       95,641  
Total current liabilities
    1,313,380       1,348,617  
                 
Noncurrent liabilities:
               
Credit facility
    572,000       463,000  
Deferred tax liabilities
    7,646       7,646  
Deferred compensation
    16,087       10,420  
Pension liabilities
    12,990       17,233  
Deferred business acquisition obligations
    106,185       267,896  
Minority shareholder redemption liability
    18,585       18,402  
Other
    148,286       105,042  
Total liabilities
    2,195,159       2,238,256  
                 
Commitments and contingencies
    -       -  
                 
Company shareholders' equity:
               
Common stock, $.01 par value per share, 100,000,000 shares authorized;44,043,059 and 43,470,271 shares issued and outstanding
    440       435  
Additional paid-in capital
    926,114       904,968  
Retained earnings
    919,184       827,297  
Shares held in trust
    (7,599 )     (7,814 )
Accumulated other comprehensive income (loss)
    14,834       (33,757 )
Total Company shareholders’ equity
    1,852,973       1,691,129  
Noncontrolling interest
    5,878       3,251  
Total equity
    1,858,851       1,694,380  
Total liabilities and equity
  $ 4,054,010       3,932,636  

See accompanying notes to consolidated financial statements

 
JONES LANG LASALLE INCORPORATED
Consolidated Statements of Comprehensive Income (Loss)
For the Three and Nine Months Ended September 30, 2012 and 2011
($ in thousands, except share data) (unaudited)

   
Three Months
   
Three Months
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Revenue
  $ 949,491       903,210     $ 2,684,126       2,436,368  
                                 
Operating expenses:
                               
Compensation and benefits
    622,360       602,473       1,752,804       1,608,051  
Operating, administrative and other
    235,370       207,517       701,731       613,687  
Depreciation and amortization
    19,089       22,835       58,710       60,500  
Restructuring and acquisition charges
    6,820       16,031       32,376       22,144  
Total operating expenses
    883,639       848,856       2,545,621       2,304,382  
                                 
Operating income
    65,852       54,354       138,505       131,986  
                                 
Interest expense, net of interest income
    (9,952 )     (9,667 )     (24,837 )     (27,218 )
Equity in earnings from real estate ventures
    10,698       514       22,500       2,682  
                                 
Income before income taxes and noncontrolling interest
    66,598       45,201       136,168       107,450  
                                 
Provision for income taxes
    16,916       11,300       34,587       26,863  
Net income
    49,682       33,901       101,581       80,587  
                                 
Net income attributable to noncontrolling interest
    169       21       603       1,121  
Net income attributable to the Company
    49,513       33,880       100,978       79,466  
                                 
Dividends on unvested common stock, net of tax benefit
    -       -       (253 )     (236 )
Net income attributable to common shareholders
  $ 49,513       33,880     $ 100,725       79,230  
                                 
Basic earnings per common share
  $ 1.12       0.78     $ 2.30       1.84  
Basic weighted average shares outstanding
    44,015,922       43,421,666       43,780,819       43,069,567  
                                 
Diluted earnings per common share
  $ 1.10       0.76     $ 2.25       1.79  
Diluted weighted average shares outstanding
    44,826,502       44,355,453       44,755,817       44,376,796  
                                 
Other comprehensive income:
                               
Net income attributable to the Company
  $ 49,513       33,880     $ 100,978       79,466  
Foreign currency translation adjustments
    54,924       (63,332 )     48,591       (13,208 )
Comprehensive income (loss) attributable to the Company
  $ 104,437       (29,452 )   $ 149,569       66,258  
 
See accompanying notes to consolidated financial statements.

 
JONES LANG LASALLE INCORPORATED
Consolidated Statement of Changes in Equity
For the Nine Months Ended September 30, 2012
($ in thousands, except share data) (unaudited)

   
Company Shareholders' Equity
             
               
Additional
         
Shares
   
Other
             
   
Common Stock
   
Paid-In
   
Retained
   
Held in
   
Comprehensive
   
Noncontrolling
   
Total
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Trust
   
Income ( Loss)
   
Interest
   
Equity
 
Balances at December 31, 2011
    43,470,271     $ 435       904,968       827,297       (7,814 )     (33,757 )     3,251     $ 1,694,380  
                                                                 
Net income
                      100,978                   603       101,581  
                                                                 
Shares issued under stock compensation programs
    744,259       7       3,483                               3,490  
                                                                 
Shares repurchased for payment of taxes on stock awards
    (171,471 )     (2 )     (11,557 )                             (11,559 )
                                                                 
Tax adjustments due to vestings and exercises
                3,438                               3,438  
                                                                 
Amortization of stock compensation
                25,782                               25,782  
                                                                 
Shares held in trust
                            215                   215  
                                                                 
Dividends declared, $0.20 per share
                      (9,091 )                       (9,091 )
                                                                 
Increase in amounts due to noncontrolling interest
                                        2,024       2,024  
                                                                 
Foreign currency translation adjustments
                                  48,591             48,591  
                                                                 
Balances at September 30, 2012
    44,043,059     $ 440       926,114       919,184       (7,599 )     14,834       5,878     $ 1,858,851  

See accompanying notes to consolidated financial statements.

 
JONES LANG LASALLE INCORPORATED
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2012 and 2011
($ in thousands) (unaudited)
 
   
Nine
   
Nine
 
   
Months Ended
   
Months Ended
 
   
September 30, 2012
   
September 30, 2011
 
             
Cash flows used in operating activities:
           
Net income
  $ 101,581       80,587  
Reconciliation of net income to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    58,710       60,500  
Equity in earnings from real estate ventures
    (22,500 )     (2,682 )
Operating distributions from real estate ventures
    7,996       555  
Provision for loss on receivables and other assets
    10,552       9,457  
Amortization of deferred compensation
    26,181       24,149  
Accretion of interest on deferred business acquisition obligations
    11,486       15,214  
Amortization of debt issuance costs
    3,233       3,307  
Change in:
               
Receivables
    48,300       (16,328 )
Prepaid expenses and other assets
    (42,358 )     (5,754 )
Deferred tax assets, net
    6,132       29,406  
Excess tax benefit from share-based payment arrangements
    (3,438 )     (17,524 )
Accounts payable, accrued liabilities and accrued compensation
    (171,587 )     (222,062 )
Net cash provided by (used in) operating activities
    34,288       (41,175 )
                 
Cash flows used in investing activities:
               
Net capital additions – property and equipment
    (54,837 )     (55,902 )
Business acquisitions
    (26,190 )     (234,001 )
Capital contributions and advances to real estate ventures
    (95,166 )     (65,684 )
Distributions, repayments of advances and sale of investments
    40,636       19,424  
Net cash used in investing activities
    (135,557 )     (336,163 )
                 
Cash flows from financing activities:
               
Proceeds from borrowings under credit facilities
    1,372,684       1,264,753  
Repayments of borrowings under credit facilities
    (1,298,000 )     (870,100 )
Payments of deferred business acquisition obligations
    (31,699 )     (162,639 )
Debt issuance costs
    -       (2,630 )
Shares repurchased for payment of employee taxes on stock awards
    (11,559 )     (30,194 )
Excess tax adjustment from share-based payment arrangements
    3,438       17,524  
Common stock issued under option and stock purchase programs
    3,490       1,151  
Other loan proceeds
    13,282       -  
Payment of dividends
    (9,091 )     (6,753 )
Net cash provided by financing activities
    42,545       211,112  
                 
Net decrease in cash and cash equivalents
    (58,724 )     (166,226 )
Cash and cash equivalents, beginning of the period
    184,454       251,897  
Cash and cash equivalents, end of the period
  $ 125,730       85,671  
                 
Supplemental disclosure of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 9,080       8,730  
Income taxes, net of refunds
    50,031       53,834  
Non-cash financing activities:
               
Deferred business acquisition obligations
  $ 3,831       143,526  
Provision recorded for potential earn-out obligations
    6,498       14,722  

See accompanying notes to consolidated financial statements.

 
6


JONES LANG LASALLE INCORPORATED

Notes to Consolidated Financial Statements (Unaudited)
Readers of this quarterly report should refer to the audited financial statements of Jones Lang LaSalle Incorporated (“Jones Lang LaSalle,” which may also be referred to as “the Company” or as “the firm,” “we,” “us” or “our”) for the year ended December 31, 2011, which are included in our 2011 Annual Report, filed with the United States Securities and Exchange Commission (“SEC”) and also available on our website (www.joneslanglasalle.com), since we have omitted from this report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements. You should also refer to the “Summary of Critical Accounting Policies and Estimates” section within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in this quarterly report and within Item 7 of our 2011 Annual Report, and to Note 2, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in our 2011 Annual Report for further discussion of our significant accounting policies and estimates.

(1)
Interim Information
Our consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for these interim periods have been included. Certain prior year amounts have been reclassified to conform to the current year presentation.

Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is the result of a general focus in the real estate industry on completing transactions by calendar-year-end while we recognize certain expenses evenly throughout the year. Our Investment Management segment generally earns investment-generated performance fees on clients’ real estate investment returns and co-investment equity gains when assets are sold, the timing of which is geared toward the benefit of our clients. Within our Real Estate Services (“RES”) segments, revenue for capital markets activities relates to the size and timing of our clients’ transactions and can fluctuate significantly from period to period. Non-variable operating expenses, which we treat as expenses when they are incurred during the year, are relatively constant on a quarterly basis. As such, the results for the periods ended September 30, 2012 and 2011 are not indicative of what our results will be for the full fiscal year.

 
(2)
Significant Accounting Policies
Warehouse Receivables and Facilities
In the first quarter of 2011, we acquired certain assets of Atlanta-based Primary Capital™ Advisors. This acquisition expands our capital market service offerings and allows us to better meet our clients’ needs through the origination, warehousing, sale and servicing of commercial mortgages as a Federal Home Loan Mortgage Corporation (Freddie Mac) Program Plus® Seller/Servicer. We originate mortgages based on contractual purchase commitments which are received from Freddie Mac prior to originating mortgages. Loans are generally funded by our warehouse facility at prevailing market rates. Loans are generally repaid within a one-month period when Freddie Mac buys the loans, while we retain the servicing rights. Upon surrender of control over the warehouse receivables, we account for the transfer as a sale.

We carry Warehouse receivables at the lower of cost or fair value based on the commitment price, in accordance with Accounting Standards Codification (“ASC”) 948, Financial Services—Mortgage Banking. At September 30, 2012, all Warehouse receivables included in the accompanying consolidated balance sheets were under commitment to be purchased. The commitment price is equal to our cost.

Through June 30, 2012, we maintained an open-end warehouse facility with Kemps Landing Capital Company, LLC to fund Warehouse receivables. On January 6, 2012, the Federal Housing Finance Agency announced a termination of Freddie Mac’s purchase commitment agreement with Kemps Landing effective June 30, 2012.

On July 1, 2012, we entered into an uncommitted warehouse facility with a third-party lender, with a maximum capacity of $85 million, to fund Warehouse receivables. This facility bears interest at LIBOR plus 2.5%. During the third quarter, we entered into a short-term agreement with the third-party lender whereby the capacity of the warehouse facility can be increased by $75 million upon establishment of a cash collateral account.
 
Mortgage Servicing Rights
We retain certain servicing rights in connection with the origination and sale of mortgage loans. We record mortgage servicing rights based on the fair value of these rights on the date the loans are sold. The recording of mortgage servicing rights at their fair value results in net gains, which we record as revenue in our consolidated statements of comprehensive income (loss). At September 30, 2012 and December 31, 2011, we had $3.6 million and $1.4 million, respectively, of mortgage servicing rights carried at the lower of amortized cost or fair value in Identified intangible assets on our consolidated balance sheets. We amortize servicing rights in proportion to and over the estimated period that net servicing income is projected to be received.

 
7

 
We evaluate the mortgage servicing assets for impairment on an annual basis, or more often if circumstances or events indicate a change in fair value. There have been no instances of impairment during all periods presented. Mortgage servicing rights do not actively trade in an open market with readily available observable prices; therefore we determine the fair value of these rights based on certain assumptions and judgments that are Level 3 within the fair value hierarchy, including the estimation of the present value of future cash flows to be realized from servicing the underlying mortgages.

New Accounting Standards
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU’) No. 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the components of net income and other comprehensive income either in a single continuous statement or in two consecutive statements. To meet the requirements of ASU 2011-05, we have presented other comprehensive income (loss) and its components in our consolidated statements of comprehensive income (loss) starting in 2012.
 
 
(3)
Revenue Recognition
We earn revenue from the following principal sources:

 
·
Transaction commissions;
 
·
Advisory and management fees;
 
·
Incentive fees;
 
·
Project and development management fees; and
 
·
Construction management fees.

We recognize transaction commissions related to leasing services and capital markets services as revenue when we provide the related service unless future contingencies exist. If future contingencies exist, we defer recognition of this revenue until the respective contingencies have been satisfied.

We recognize advisory and management fees related to property management services, valuation services, corporate property services, consulting services and investment management as income in the period in which we perform the related services.

We recognize incentive fees based on the performance of underlying funds’ investments, contractual benchmarks and other contractual formulas.

We recognize project and development management and construction management fees by applying the percentage of completion method of accounting. We use the efforts expended method to determine the extent of progress towards completion for project and development management fees and costs incurred to total estimated costs for construction management fees.

Construction management fees, which are gross construction services revenue net of subcontract costs, were $1.8 million and $2.0 million for the three months ended September 30, 2012 and 2011, respectively, and $5.0 million and $6.6 million for the nine months ended September 30, 2012 and 2011, respectively. Gross construction services revenue totaled $27.9 million and $29.4 million for the three months ended September 30, 2012 and 2011, respectively, and $84.9 million and $104.0 million for the nine months ended September 30, 2012 and 2011, respectively. Subcontract costs totaled $26.1 million and $27.4 million for the three months ended September 30, 2012 and 2011, respectively, and $79.9 million and $97.4 million for the nine months ended September 30, 2012 and 2011, respectively.

Included in our consolidated balance sheets were costs in excess of billings on uncompleted construction contracts of $8.8 million and $7.1 million in Trade receivables as of September 30, 2012 and December 31, 2011, respectively, and billings in excess of costs on uncompleted construction contracts of $3.0 and $4.1 million in Deferred income, respectively, as of September 30, 2012 and December 31, 2011.

Gross and Net Accounting: We follow the guidance of FASB Accounting Standards Codification (“ASC”) 605-45, “Principal and Agent Considerations,” when accounting for reimbursements received from clients. In certain of our businesses, primarily those involving management services, our clients reimburse us for expenses incurred on their behalf. We base the treatment of reimbursable expenses for financial reporting purposes upon the fee structure of the underlying contract.

Accordingly, we report a contract that provides a fixed fee billing, fully inclusive of all personnel and other recoverable expenses incurred but not separately scheduled, on a gross basis. When accounting on a gross basis, our reported revenue includes the full billing to our client and our reported expenses include all costs associated with the client. Certain contractual arrangements in our project and development services, including fit-out business activities, and in facility management, tend to have characteristics that result in accounting on a gross basis. In Note 4, Business Segments, we identify vendor and subcontract costs on certain client assignments in property and facilities management, and project and development services (“gross contract costs”), and present separately their impact on both revenue and operating expense in our RES segments. We exclude these costs from revenue and operating expenses in determining “fee revenue” and “fee based operating expenses” in our segment presentation.
 
We account for a contract on a net basis when the fee structure is comprised of at least two distinct elements, namely (1) a fixed management fee and (2) a separate component that allows for scheduled reimbursable personnel costs or other expenses to be billed directly to the client. When accounting on a net basis, we include the fixed management fee in reported revenue and net the reimbursement against expenses. We base this accounting on the following factors, which define us as an agent rather than a principal:

 
·
The property owner or client, with ultimate approval rights relating to the employment and compensation of on-site personnel, and bearing all of the economic costs of such personnel, is determined to be the primary obligor in the arrangement;

 
·
Reimbursement to Jones Lang LaSalle is generally completed simultaneously with payment of payroll or soon thereafter;

 
·
Because the property owner is contractually obligated to fund all operating costs of the property from existing cash flow or direct funding from its building operating account, Jones Lang LaSalle bears little or no credit risk; and

 
·
Jones Lang LaSalle generally earns no margin in the reimbursement aspect of the arrangement, obtaining reimbursement only for actual costs incurred.

The majority of our service contracts are accounted for on a net basis. Total costs incurred and reimbursed by our clients for service contracts that were accounted for on a net basis were $370.8 million and $354.2 million for the three months ended September 30, 2012 and 2011, respectively, and $1,123.6 million and $1,072.4 million for the nine months ended September 30, 2012 and 2011, respectively.

Contracts accounted for on a gross basis resulted in certain costs reflected in revenue and operating expenses of $71.7 million and $46.8 million for the three months ended September 30, 2012 and 2011, respectively, and $209.2 million and $143.6 million for the nine months ended September 30, 2012 and 2011, respectively.

Certain of our management services which provide for fixed fees inclusive of personnel and other expenses incurred were accounted for on a net basis in 2011. In 2012, these management services revenue and expenses are presented on a gross basis. For the three and nine months ended September 30, 2011, gross accounting for these management services would have added $18.7 million and $56.1 million, respectively, to both revenue and expense.

The presentation of expenses pursuant to all of these arrangements under either a gross or net basis has no impact on operating income, net income or cash flows.

 
8

 
(4)
Business Segments
We manage and report our operations as four business segments:

The three geographic regions of Real Estate Services (“RES”):
 
(i)
Americas,
 
(ii)
Europe, Middle East and Africa (“EMEA”),
 
(iii)
Asia Pacific; and

 
(iv)
Investment Management, which offers investment management services on a global basis.
 
Each geographic region offers our full range of Real Estate Services, including agency leasing and tenant representation, capital markets and hotels, property management, facilities management, project and development management, energy management and sustainability, construction management, and advisory, consulting and valuation services.

The Investment Management segment provides investment management services to institutional investors and high-net-worth individuals.

Operating income (loss) represents total revenue less direct and indirect allocable expenses. We allocate all expenses to our segments, other than interest and income taxes, as nearly all expenses incurred benefit one or more of the segments. Allocated expenses primarily consist of corporate global overhead. We allocate these corporate global overhead expenses to the business segments based on the budgeted operating expenses of each segment.

For segment reporting, we show revenue net of gross contract costs in our RES segments. Excluding these costs from revenue and expenses in a “net” presentation of “fee revenue” and “fee-based operating expense” more accurately reflects how we manage our expense base and operating margins. See Note 3, Revenue Recognition, for additional information on our gross and net accounting.  For segment reporting we also show Equity in earnings (losses) from real estate ventures within total segment revenue, since it is an integral part of our Investment Management segment. Finally, our measure of segment results also excludes restructuring charges and certain acquisition related costs.

The Chief Operating Decision Maker of Jones Lang LaSalle measures the segment results net of gross contract costs, with equity in earnings (losses) from real estate ventures, and without restructuring charges. We define the Chief Operating Decision Maker collectively as our Global Executive Committee, which is comprised of our Global Chief Executive Officer, Global Chief Operating and Financial Officer and the Chief Executive Officers of each of our reporting segments.

Summarized unaudited financial information by business segment for the three and nine months ended September 30, 2012 and 2011 is as follows ($ in thousands):

   
Three Months
   
Three Months
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30, 2012
   
September 30, 2011
   
September 30, 2012
   
September 30, 2011
 
Real Estate Services
                       
Americas
                       
Segment revenue:
                       
Revenue
  $ 437,221       379,273       1,191,841       1,013,128  
Equity in earnings (losses)
    131       34       (77 )     2,666  
Total segment revenue
    437,352       379,307       1,191,764       1,015,794  
                                 
Gross contract costs
    (23,464 )     (575 )     (62,180 )     (3,890 )
Total segment fee revenue
    413,888       378,732       1,129,584       1,011,904  
                                 
Operating expenses:
                               
Compensation, operating and administrative expenses
    383,964       332,831       1,067,768       908,736  
Depreciation and amortization
    10,748       9,325       31,129       28,793  
Total segment operating expenses
    394,712       342,156       1,098,897       937,529  
                                 
Gross contract costs
    (23,464 )     (575 )     (62,180 )     (3,890 )
Total fee-based segment operating expenses
    371,248       341,581       1,036,717       933,639  
                                 
Operating income
  $ 42,640       37,151       92,867       78,265  

 
Continued: Summarized unaudited financial information by business segment for the three and nine months ended September 30, 2012 and 2011 is as follows ($ in thousands):

   
Three Months
   
Three Months
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Real Estate Services
                       
EMEA
                       
Segment revenue:
                       
Revenue
  $ 234,410       247,298       696,906       633,720  
Equity in (losses) earnings
    (158 )     4       (228 )     (306 )
Total segment revenue
    234,252       247,302       696,678       633,414  
                                 
Gross contract costs
    (26,330 )     (19,602 )     (79,294 )     (63,137 )
Total segment fee revenue
    207,922       227,700       617,384       570,277  
                                 
Operating expenses:
                               
Compensation, operating and administrative expenses
    225,124       236,855       673,217       619,136  
Depreciation and amortization
    4,759       9,824       16,643       20,326  
Total segment operating expenses
    229,883       246,679       689,860       639,462  
                                 
Gross contract costs
    (26,330 )     (19,602 )     (79,294 )     (63,137 )
Total fee-based segment operating expenses
    203,553       227,077       610,566       576,325  
                                 
Operating income (loss)
  $ 4,369       623       6,818       (6,048 )
                                 
Asia Pacific
                               
Segment revenue:
                               
Revenue
  $ 206,272       200,536       597,147       580,362  
Equity in earnings
    47       56       161       151  
Total segment revenue
    206,319       200,592       597,308       580,513  
                                 
Gross contract costs
    (21,893 )     (26,577 )     (67,772 )     (76,563 )
Total segment fee revenue
    184,426       174,015       529,536       503,950  
                                 
Operating expenses:
                               
Compensation, operating and administrative expenses
    191,026       183,563       555,446       530,311  
Depreciation and amortization
    3,143       3,128       9,556       9,202  
Total segment operating expenses
    194,169       186,691       565,002       539,513  
                                 
Gross contract costs
    (21,893 )     (26,577 )     (67,772 )     (76,563 )
Total fee-based segment operating expenses
    172,276       160,114       497,230       462,950  
                                 
Operating income
  $ 12,150       13,901       32,306       41,000  
                                 
Investment Management
                               
Segment revenue:
                               
Revenue
  $ 71,588       76,103       198,232       209,158  
Equity in earnings
    10,678       420       22,644       171  
Total segment revenue
    82,266       76,523       220,876       209,329  
                                 
Operating expenses:
                               
Compensation, operating and administrative expenses
    57,616       56,741       158,104       163,555  
Depreciation and amortization
    439       558       1,382       2,179  
Total segment operating expenses
    58,055       57,299       159,486       165,734  
                                 
Operating income
  $ 24,211       19,224       61,390       43,595  
                                 
Segment Reconciling Items:
                               
Total segment revenue
  $ 960,189       903,724       2,706,626       2,439,050  
Reclassification of equity in earnings (losses)
    10,698       514       22,500       2,682  
Total revenue
    949,491       903,210       2,684,126       2,436,368  
                                 
Total segment operating expenses before restructuring charges
    876,819       832,825       2,513,245       2,282,238  
Restructuring charges
    6,820       16,031       32,376       22,144  
Operating income
  $ 65,852       54,354       138,505       131,986  

 
10


(5)
Business Combinations, Goodwill and Other Intangible Assets
2012 Business Combinations Activity
In the first nine months of 2012, we paid $26.2 million for acquisitions consisting of $13.9 million for three new acquisitions and $12.3 million for contingent earn-out consideration for acquisitions completed in prior years. We also paid $31.7 million to satisfy deferred acquisition obligations, primarily for the 2011 King Sturge acquisition.

In the first nine months of 2012, we completed three acquisitions: (1) MPS an Australian tenant advisory firm, (2) 360 Commercial Partners, an Orange County, California based real estate services firm that specializes in industrial sales and leasing, and (3) Credo Real Estate, a Singapore-based real estate advisory firm specializing in collective and residential sales, valuations, auctions, research and consultancy. Terms of these acquisitions included: (1) cash paid at closing, net of cash acquired, of $13.9 million, (2) consideration subject only to the passage of time recorded as Deferred business acquisition obligations at a current fair value of $3.8 million, and (3) additional consideration subject to earn-out provisions that will be paid only if certain conditions are achieved, recorded as current and long-term liabilities, at their estimated fair value of $6.5 million. These acquisitions resulted in goodwill of $25.1 million, and identifiable intangibles of $1.4 million.

During the six months ended June 30, 2012, we finalized the purchase price allocation of the net assets acquired in the 2011 King Sturge acquisition, resulting in $3.5 million of additional goodwill.

Earn-Out Payments
At September 30, 2012, we had the potential to make earn-out payments on 14 acquisitions that are subject to the achievement of certain performance conditions. The maximum amount of the potential earn-out payments for these acquisitions was $148.0 million at September 30, 2012. Assuming the achievement of the applicable performance conditions, we anticipate that the majority of these earn-out payments will come due by the end of 2013, with the remaining payments coming due at various times through 2015.

Approximately $127.4 million of these potential earn-out payments are the result of acquisitions completed prior to the adoption of the fair value requirements for contingent consideration under ASC 805, “Business Combinations,” and thus will be recorded as additional purchase consideration if and when the contingency is met. Changes in the estimated fair value of the remaining $20.6 million of potential earn-out payments will result in increases or decreases in Operating, administrative and other expenses in our consolidated statements of comprehensive income (loss). The fair value of these contingent payments is based on discounted cash flow models that reflect our projection of operating results of each respective acquisition and are based on Level 3 inputs in the fair value hierarchy.

Goodwill and Other Intangible Assets
We have $1.9 billion of unamortized intangibles and goodwill as of September 30, 2012. A significant portion of these unamortized intangibles and goodwill are denominated in currencies other than U.S. dollars, which means that a portion of the movements in the reported book value of these balances is attributable to movements in foreign currency exchange rates. The tables below detail the foreign exchange impact on our intangible and goodwill balances. Of the $1.9 billion of unamortized intangibles and goodwill: (1) goodwill of $1.8 billion with indefinite useful lives is not amortized, (2) identifiable intangibles of $38.7 million will be amortized over their remaining finite useful lives, and (3) $9.0 million of identifiable intangibles with indefinite useful lives is not amortized.

The following table details, by reporting segment, the current year movements in goodwill with indefinite useful lives ($ in thousands):

   
Real Estate Services
             
               
Asia
   
Investment
       
   
Americas
   
EMEA
   
Pacific
   
Management
   
Consolidated
 
Gross Carrying Amount
                             
Balance as of January 1, 2012
  $ 922,301       592,634       217,434       18,838       1,751,207  
Additions, net of adjustments
    8,302       9,143       23,865       -       41,310  
Impact of exchange rate movements
    (44 )     20,505       3,203       763       24,427  
Balance as of September 30, 2012
  $ 930,559       622,282       244,502       19,601       1,816,944  

 
The following table details, by reporting segment, the current year movements in the gross carrying amount and accumulated amortization of our identifiable intangibles ($ in thousands):

   
Real Estate Services
             
               
Asia
   
Investment
       
   
Americas
   
EMEA
   
Pacific
   
Management
   
Consolidated
 
Gross Carrying Amount
                             
Balance as of January 1, 2012
  $ 87,077       44,107       12,419       8,788       152,391  
Additions
    3,474       -       1,166       -       4,640  
Adjustment for fully amortized intangibles
    -       (3,700 )     -       -       (3,700 )
Impact of exchange rate movements
    (8 )     2,008       181       316       2,497  
Balance as of September 30, 2012
  $ 90,543       42,415       13,766       9,104       155,828  
                                         
Accumulated Amortization
                                       
Balance as of January 1, 2012
  $ (64,662 )     (24,104 )     (10,887 )     (148 )     (99,801 )
Amortization expense
    (5,318 )     (4,442 )     (977 )     -       (10,737 )
Adjustment for fully amortized intangibles
    -       3,700       -       -       3,700  
Impact of exchange rate movements
    9       (1,106 )     (148 )     -       (1,245 )
Balance as of September 30, 2012
  $ (69,971 )     (25,952 )     (12,012 )     (148 )     (108,083 )
                                         
Net book value as of September 30, 2012
  $ 20,572       16,463       1,754       8,956       47,745  

The following table shows the remaining estimated future amortization expense for our identifiable intangibles with finite useful lives at September 30, 2012 ($ in thousands):

2012  (3 months)
  $ 3,306  
2013
    8,941  
2014
    8,057  
2015
    6,501  
2016
    3,044  
2017
    2,486  
Thereafter
    6,406  
Total
  $ 38,741  
 
 
 
(6)
Investments in Real Estate Ventures
As of September 30, 2012, we had total investments in real estate ventures of $295.5 million that we account for primarily under the equity method of accounting. Our investments are primarily co-investments in approximately 40 separate property or fund co-investments for which we also have an advisory agreement. Our ownership percentages in these investments generally range from less than 1% to 15%.

We utilize two investment vehicles to facilitate the majority of our co-investment activity when we do not invest directly into a real estate venture. LaSalle Investment Company I (“LIC I”) is our investment vehicle for substantially all co-investment commitments made through December 31, 2005. LIC I is fully committed to underlying real estate ventures. At September 30, 2012, our maximum potential unfunded commitment to LIC I is $4.8 million (€3.7 million). LaSalle Investment Company II (“LIC II”) is our investment vehicle for substantially all co-investment commitments made after December 31, 2005. At September 30, 2012, LIC II has unfunded capital commitments to the underlying funds of $186.9 million, of which our 48.78% share is $91.2 million. The $91.2 million commitment is part of our maximum potential unfunded total commitment to LIC II at September 30, 2012 of $153.0 million. Exclusive of our LIC I and LIC II commitment structures, we have other potential unfunded commitment obligations, the maximum of which is $38.0 million as of September 30, 2012.

LIC I and LIC II invest in certain real estate ventures that own and operate commercial real estate. We have an effective 47.85% ownership interest in LIC I, and an effective 48.78% ownership interest in LIC II; primarily institutional investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC II, respectively. Additionally, a non-executive Director of Jones Lang LaSalle is an investor in LIC I on equivalent terms to other investors.

 
LIC I’s and LIC II’s exposures to liabilities and losses of the ventures are limited to their existing capital contributions and remaining capital commitments. We expect that LIC I will draw down on our remaining commitment over the next one to two years to satisfy its existing commitments to underlying funds, and we expect that LIC II will draw down on our commitment over the next four to eight years as it enters into new commitments. Our Board of Directors has approved the use of our co-investment capital in particular situations to control existing real estate assets or portfolios to seed future investments within LIC II.

As of September 30, 2012, LIC II maintains a $60.0 million revolving credit facility (the “LIC II Facility”), principally for working capital needs. The LIC II Facility contains a credit rating trigger and a material adverse condition clause. If either the credit rating trigger or the material adverse condition clause becomes triggered, the facility would be in default and outstanding borrowings would need to be repaid. Such a condition would require us to fund our pro-rata share of the then outstanding balance on LIC II, which is the limit of our liability. The maximum exposure to Jones Lang LaSalle, assuming that the LIC II Facility was fully drawn, would be $29.3 million. The exposure is included within and cannot exceed our maximum potential unfunded commitment to LIC II of $153.0 million. As of September 30, 2012, LIC II had $48.1 million of outstanding borrowings on the facility.

Our investments in real estate ventures include investments in entities classified as variable interest entities (“VIEs”) that we analyze for potential consolidation. We had investments of $10.7 million and $22.3 million at September 30, 2012 and December 31, 2011, respectively, in entities classified as VIEs. We evaluate each of these VIEs to determine whether we might have the power to direct the activities that most significantly impact the entity’s economic performance.  In each case, we determined that we either (a) did not have the power to direct the key activities or (b) shared power with investors, lenders, or other actively-involved third parties. Additionally, our exposure to loss in these VIEs is limited to the amount of our investment in the entities. Therefore, we concluded that we would not be deemed to (1) have a controlling financial interest in or (2) be the primary beneficiary of these VIEs. Accordingly, we do not consolidate these VIEs in our consolidated financial statements.

Impairment
We review our investments in real estate ventures that are accounted for under the equity method of accounting on a quarterly basis for indications of (1) whether the carrying value of the real estate assets underlying our investments in real estate ventures may not be recoverable or (2) whether our equity in these investments is other than temporarily impaired. When events or changes in circumstances indicate that the carrying amount of a real estate asset underlying one of our investments in real estate ventures may be impaired, we review the recoverability of the carrying amount of the real estate asset in comparison to an estimate of the future undiscounted cash flows expected to be generated by the underlying asset. When the carrying amount of the real estate asset is in excess of the future undiscounted cash flows, we use a discounted cash flow approach to determine the fair value of the asset in computing the amount of the impairment. Equity in earnings (losses) from real estate ventures included impairment charges of $1.5 million and $2.3 million, for the three months ended September 30, 2012 and 2011, respectively, and $5.9 million and $5.2 million, for the nine months ended September 30, 2012 and 2011, respectively, representing our share of the impairment charges against individual assets held by our real estate ventures.

Fair Value
Starting in the third quarter of 2011, we elected the fair value option, in the ordinary course of business at the time of the initial investment, for certain investments in real estate ventures because we believe the fair value accounting method more accurately represents the value and performance of these investments. At September 30, 2012 and December 31, 2011, we had $97.0 million and $35.9 million, respectively, of investments that were accounted for under the fair value method. For investments in real estate ventures for which the fair value option has been elected, we increase or decrease our investment each reporting period by the change in the fair value of these investments. These fair value adjustments are reflected as gains or losses in our consolidated statements of comprehensive income (loss) within Equity in earnings (losses) from real estate ventures. For the three and nine months ended September 30, 2012 we recognized fair value gains of $1.6 million and $0.4 million, respectively, and no fair value adjustments were recognized during the three and nine months ended September 30, 2011. The fair value of these investments is based on discounted cash flow models and other assumptions that reflect our outlook for the commercial real estate market relative to these real estate assets and is primarily based on inputs that are Level 3 inputs in the fair value hierarchy. See Note 9, Fair Value Measurements, for further detail on our fair value accounting.
 
The following table shows the current year movements in our investments in real estate ventures that are accounted for under the fair value accounting method ($ in thousands):

Fair value investments as of January 1, 2012
  $ 35,872  
Investments
    88,178  
Distributions
    (3,883 )
Net fair value gain
    397  
Foreign currency translation adjustments, net
    808  
Fair value investments as of September 30, 2012
  $ 121,372  

 
(7)
Stock-based Compensation

Restricted Stock Unit Awards
Along with cash based-salaries and performance-based annual cash incentive awards, restricted stock unit awards represent a primary element of our compensation program for Company officers, managers and professionals.

Historically a significant portion of restricted stock units granted each year have been granted in the first quarter of the year under our Stock Ownership Program (the “SOP”). The SOP generally required that from 10% to 20% of incentive compensation (or “bonus”) of our senior-most 5% of employees be deferred and delivered in restricted stock units. Under the SOP plan we have granted approximately 365,000, 212,000 and 297,000 shares of restricted stock in the first quarters of 2012, 2011 and 2010, respectively. In the second quarter of 2012, we terminated the SOP in connection with incentive compensation payments for 2012 performance, and no additional restricted stock units will be issued under the SOP. Since the start of the SOP, our employee population has grown significantly and other aspects of our compensation programs have evolved, as a result of which we have determined that (1) there are other more targeted and strategic approaches we can take in order to enhance our equity incentive compensation programs, and (2) we can do so in a way that will be less dilutive to shareholders than the SOP would be if we continued this plan. We anticipate that the termination of the SOP will significantly change the timing and number of restricted stock units granted annually starting in 2013.

Restricted stock unit activity for the three months ended September 30, 2012 is as follows:

         
Weighted Average
 
Weighted Average
 
Aggregate
 
   
Shares
   
Grant Date
 
Remaining
 
Intrinsic Value
 
   
(thousands)
   
Fair Value
 
Contractual Life
 
($ in millions)
 
Unvested at July 1, 2012
    1,710.5     $ 68.49          
Granted
    15.6       70.56          
Vested
    (356.9 )     69.34          
Forfeited
    (16.2 )     63.56          
Unvested at September 30, 2012
    1,353.0     $ 68.35  
2.22 years
  $ 95.9  
Unvested shares expected to vest
    1,310.9     $ 68.38  
2.22 years
  $ 93.0  

Restricted stock unit activity for the nine months ended September 30, 2012 is as follows:

         
Weighted Average
 
Weighted Average
 
Aggregate
 
   
Shares
   
Grant Date
 
Remaining
 
Intrinsic Value
 
   
(thousands)
   
Fair Value
 
Contractual Life
 
($ in millions)
 
Unvested at January 1, 2012
    1,362.3     $ 66.29          
Granted
    592.8       67.08          
Vested
    (574.3 )     62.14          
Forfeited
    (27.8 )     68.70          
Unvested at September 30, 2012
    1,353.0     $ 68.35  
2.22 years
  $ 95.9  
Unvested shares expected to vest
    1,310.9     $ 68.38  
2.22 years
  $ 93.0  

We determine the fair value of restricted stock units based on the market price of the Company’s common stock on the grant date. As of September 30, 2012, we had $37.0 million of remaining unamortized deferred compensation related to unvested restricted stock units. We will recognize the remaining cost of unvested restricted stock units outstanding at September 30, 2012 over varying periods into 2017.

Shares vesting during the three months ended September 30, 2012 and 2011 had grant date fair values of $24.7 million and $31.4 million, respectively. Shares vesting during the nine months ended September 30, 2012 and 2011 had grant date fair values of $35.7 million and $49.6 million, respectively.

Other Stock Compensation Programs
The Jones Lang LaSalle Savings Related Share Option Plan (“Save As You Earn” or “SAYE”) is for eligible employees of our United Kingdom and Ireland based operations. Under this plan, employees make an annual election to contribute to the plan to purchase stock at a 15% discount from the market price at the beginning of the plan’s three and five year vesting periods. In June 2012, we issued approximately 127,400 options under the SAYE plan at an exercise price of $59.26. In March 2011, we issued approximately 17,000 options at an exercise price of $83.72.  No options were issued in the third quarter of 2012. At September 30, 2012, there were approximately 240,200 options outstanding under the SAYE plan.

 
(8)
Retirement Plans
We maintain five contributory defined benefit pension plans in the United Kingdom, Ireland and Holland to provide retirement benefits to eligible employees. It is our policy to fund the minimum annual contributions required by applicable regulations. We use a December 31st measurement date for our plans.  Net periodic pension cost consisted of the following for the three and nine months ended September 30, 2012 and 2011 ($ in thousands):

   
Three Months
   
Three Months
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Employer service cost - benefits earned during the period
  $ 986       1,302       2,970       2,947  
Interest cost on projected benefit obligation
    3,538       4,700       10,605       10,256  
Expected return on plan assets
    (4,321 )     (5,952 )     (12,941 )     (12,709 )
Net amortization of deferrals
    524       317       1,569       953  
Recognized actuarial loss
    39       56       117       168  
Net periodic pension cost
  $ 766       423       2,320       1,615  

The expected return on plan assets, included in net periodic pension cost, is based on forecasted long-term rates of return on plan assets of each individual plan; expected returns range from 5.4% to 7.0%.

For the three and nine months ended September 30, 2012, we made payments of $3.5 million and $8.1 million, respectively, to these plans.  We expect to contribute an additional $4.2 million to these plans in the last three months of 2012, for a total of $12.3 million in 2012. We made $19.8 million of contributions to these plans in 2011, including $11.8 million of contributions to the plan acquired from King Sturge in May 2011.

(9)
Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures,” establishes a framework for measuring fair value in generally accepted accounting principles and establishes the following three-tier fair value hierarchy:

 
·
Level 1. Observable inputs such as quoted prices for identical assets or liabilities in active markets;

 
·
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 
·
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

We regularly use foreign currency forward contracts to manage our currency exchange rate risk related to intercompany lending and cash management practices. We determine the fair value of these contracts based on current market rates at each balance sheet date.  The inputs for these valuation techniques are primarily Level 2 inputs. At September 30, 2012, these forward exchange contracts had a gross notional value of $1.6 billion ($720.2 million on a net basis) and were recorded on our consolidated balance sheet as a current asset of $5.4 million and a current liability of $5.8 million. At December 31, 2011, these forward exchange contracts had a gross notional value of $1.7 billion ($758.2 million on a net basis) and were recorded on our consolidated balance sheet as a current asset of $4.2 million and a current liability of $5.6 million. The revaluations of our foreign currency forward contracts resulted in net losses of $0.4 million and $14.5 million for the three months ended September 30, 2012 and 2011, respectively. Gains and losses from the revaluation of these contracts are recognized as a component of Operating, administrative and other expense and are offset by the gains and losses recognized on the revaluation of intercompany loans and other foreign currency balances such that the net impact to earnings was not significant.

We maintain a deferred compensation plan for certain of our U.S. employees that allows them to defer portions of their compensation. The values of the assets and liabilities of this plan are determined based on the returns of certain mutual funds and other securities. The inputs for these valuations are primarily Level 2 inputs in the fair value hierarchy. This plan is recorded on our consolidated balance sheet at September 30, 2012 as Other long-term assets of $48.6 million, Other long-term liabilities of $57.0 million, and as a reduction of equity, Shares held in trust, of $7.6 million. This plan is recorded on our consolidated balance sheet at December 31, 2011 as Other long-term assets of $39.1 million, Other long-term liabilities of $46.7 million, and as a reduction of equity, Shares held in trust, of $7.8 million.

 
See Note 6, Investments in Real Estate Ventures, for fair value measurements relating to our investments in real estate ventures. Also, see Note 5, Business Combinations, Goodwill and Other Intangible Assets, for fair value measurements related to our earn-out obligations that are valued based on the fair value requirements for contingent consideration under ASC 805, “Business Combinations.”

Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, receivables, accounts payable, short-term borrowings, borrowings under our credit facility, borrowings under our Warehouse facilities and foreign currency forward contracts. The carrying values of cash and cash equivalents, receivables, accounts payable, short-term borrowings and borrowings under our Warehouse facilities approximate their estimated fair values due to the short maturity of these instruments. We record warehousing receivables at fair value based on the commitment price, in accordance with ASC 948, Financial Services—Mortgage Banking.

The estimated fair value of our borrowings under our credit facility approximates their carrying value due to their variable interest rate terms. The fair value of our foreign currency forward contracts is disclosed above. At September 30, 2012, we have no recurring fair value measurements for financial assets and liabilities that are based on unobservable inputs or Level 3 inputs.
 
(10)
Debt
We have a $1.1 billion unsecured revolving credit facility (the “Facility”) that matures in June 2016. We had $572.0 million and $463.0 million outstanding under the Facility, at September 30, 2012 and December 31, 2011, respectively. At September 30, 2012 we had the capacity to borrow up to an additional $510.7 million under the Facility. The average outstanding borrowings under the Facility were $712.0 million and $600.0 million during the three months ended September 30, 2012 and 2011, respectively, and $678.0 million and $421.5 million during the nine months ended September 30, 2012 and 2011, respectively.

The pricing on the Facility ranges from LIBOR plus 112.5 basis points to LIBOR plus 225.0 basis points. As of September 30, 2012, pricing on the Facility was LIBOR plus 137.5 basis points. The effective interest rate on our debt was 1.6%, during both the three months ended September 30, 2012 and 2011, respectively, and 1.6% and 1.8%, during the nine months ended September 30, 2012 and 2011, respectively.

We remain in compliance with all covenants under our Facility as of September 30, 2012. The Facility requires us to maintain a leverage ratio that does not exceed 3.50 to 1 through September 2013 and 3.25 to 1 thereafter, and a minimum cash interest coverage ratio of 3.00 to 1.

In addition to our Facility, we have the capacity to borrow up to an additional $46.7 million under local overdraft facilities. We had short-term borrowings (including capital lease obligations and local overdraft facilities) of $30.8 million and $65.1 million at September 30, 2012 and December 31, 2011, respectively, of which $24.8 million and $38.7 million at September 30, 2012 and December 31, 2011, respectively, was attributable to local overdraft facilities.

(11)
Earnings Per Share and Net Income Attributable to Common Shareholders
We calculate earnings per share by dividing net income attributable to common shareholders by weighted average shares outstanding. To calculate net income attributable to common shareholders, we subtract dividend-equivalents (net of tax) paid on outstanding but unvested shares of restricted stock units from net income in the period the dividend is declared. Included in the calculations of net income attributable to common shareholders are dividend-equivalents of $0.3 million and $0.2 million net of tax, for the nine months ended September 30, 2012 and 2011, respectively.

The difference between basic weighted average shares outstanding and diluted weighted average shares outstanding is the dilutive impact of common stock equivalents. Common stock equivalents consist of shares to be issued under employee stock compensation programs.

 
The following table details the calculations of basic and diluted earnings per common share for the three and nine months ended September 30, 2012 and 2011 ($ in thousands, except per share amounts):
 
   
Three Months
   
Three Months
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net income attributable to the Company
  $ 49,513       33,880       100,978       79,466  
Dividends on unvested common stock, net of tax benefit
    -       -       253       236  
Net income attributable to common shareholders
  $ 49,513       33,880       100,725       79,230  
                                 
Basic weighted average shares outstanding
    44,015,922       43,421,666       43,780,819       43,069,567  
Basic income per common share before dividends on unvested common stock
    1.12       0.78       2.31       1.85  
Dividends on unvested common stock, net of tax benefit
    -       -       (0.01 )     (0.01 )
Basic earnings per common share
  $ 1.12       0.78       2.30       1.84  
                                 
Diluted weighted average shares outstanding
    44,826,502       44,355,453       44,755,817       44,376,796  
Diluted income per common share before dividends on unvested common stock
  $ 1.10       0.76       2.26       1.80  
Dividends on unvested common stock, net of tax benefit
    -       -       (0.01 )     (0.01 )
Diluted earnings per common share
  $ 1.10       0.76       2.25       1.79  

 
(12)
Commitments and Contingencies
We are a defendant in various litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount. Many of these litigation matters are covered by insurance (including insurance provided through a captive insurance company), although they may nevertheless be subject to large deductibles and the amounts being claimed may exceed the available insurance. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have a material adverse effect on our financial position, results of operations or liquidity.

In order to better manage our global insurance program and support our risk management efforts, we supplement our traditional insurance coverage for certain types of claims by using a wholly-owned captive insurance company. The level of risk retained by our captive insurance company, with respect to professional indemnity claims, is up to $2.5 million per claim.

When a potential loss event occurs, management estimates the ultimate cost of the claim and accrues the related cost when probable and estimable. The accrual for professional indemnity insurance claims facilitated through our captive insurance company which relates to multiple years was $0.8 million and $0.7 million, net of receivables, as of September 30, 2012 and December 31, 2011, respectively.

(13)
Restructuring and Acquisition Charges
For the three and nine months ended September 30, 2012, we recognized $6.8 million and $32.4 million, respectively, of restructuring and acquisition integration costs consisting of (1) severance, (2) King Sturge employee retention bonuses, (3) lease exit charges, and (4) other acquisition and information technology integration costs.

For the three and nine months ended September 30, 2011, we recognized $16.0 million and $22.1 million, respectively, of restructuring and acquisition integration costs related to the King Sturge acquisition.

 
The following table shows the restructuring and acquisition accrual activity, and the related payments made during the nine months ended September 30, 2012 and 2011 ($ in thousands):

                     
Other
       
         
Retention
   
Lease
   
Acquisition
       
   
Severance
   
Bonuses
   
Exit
   
Costs
   
Total
 
January 1, 2012
  $ 11,712       7,555       7,912       4,778       31,957  
Accruals
    4,227       7,552       8,227       12,370       32,376  
Fixed asset disposals
    -       -       -       (1,799 )     (1,799 )
Payments made
    (11,209 )     (6,465 )     (2,192 )     (12,856 )     (32,722 )
September 30, 2012
  $ 4,730       8,642       13,947       2,493       29,812  

                     
Other
       
         
Retention
   
Lease
   
Acquisition
       
   
Severance
   
Bonuses
   
Exit
   
Costs
   
Total
 
January 1, 2011
  $ 4,267       -       546       -       4,813  
Accruals
    834       9,102       5,047       7,161       22,144  
Payments made
    (3,913 )     (1,148 )